Bankruptcy and credit scores Q

[Mark]

I have a question regarding bankruptcy and credit scores. I’ve acquired a lot of debt from a period when I was careless. For now I’m doing all I can to pay my debts, but I’m also considering bankruptcy as a last resort.

Is there any difference in how FICO score formula considers Chapter 7 vs. Chapter 13 bankruptcies?

[Michael]

Almost the same

To start with, bankruptcy is the worst thing that you can do to your credit. It will take you a few years to recover, and will cost you a fortune in interest payment and terms, assuming that you can find someone that will be willing to lend you money.

To answer your question, the FICO score formula treats both Chapter 7 and Chapter 13 bankruptcies similarly in terms of how they affect your FICO score. The severity of both is the same, and in both cases the filing date is used to determine how long ago the bankruptcy took place.

As with other negative credit information, the negative effect of a bankruptcy diminishes over time.

There is however one difference between the two :

1. Chapter 7, 11 and 12 bankruptcies remain on your report for 10 years from the date filed.
2. Completed Chapter 13 bankruptcies remain on your report for 7 years from the date paid, and 10 years if not completed.

You should not this information about the effect of bankruptcy and credit scores as a recommendation for choosing one type of bankruptcy over the other. Your personal situation and other financial consideration should dictate your actions.

[Author]

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